and busts would not undermine centuries of progress.
Unfortunately, this time around, there seems to be
more opportunistic plundering and less sociallyminded foresight.
There is another drawback of the modern system
that compounds this folly. It has been dubbed
“financialisation”.
“Money is not the value for which goods are
exchanged, but the value by which they are
exchanged”
- John Law,
Political Economist, 1705
In days gone by, if a man had ten cows, he had a
measure of wealth. If somebody wanted to buy a cow
from him for themselves, money was the medium
by which the exchange was transacted. The money
then enables the seller to purchase other goods
and services that he needed. With financialisation
however, came the era of money for money’s sake.
Money itself came to be considered wealth. Money
itself is now the end goal.
So much so that today, the world’s largest financial
market is Foreign Exchange. Millions of transactions
are conducted every day, buying and selling
currencies in the hope of making profits due the
fluctuation of exchanges rates.
This “industry” produces nothing of tangible benefit
whatsoever. It creates no value in the real economy,
yet it is the single largest sector in financial services
globally.
In the 1980s, Thatcher and Reagan were the
foremost proponents of free market capitalism in
which the government took a back seat. The outright
dismantling of banking regulations in the 1990s and
2000s however, marked a reckless departure, creating
a massive boom, followed naturally by the bust of
2008, the effects on which are ongoing.
The Clinton Administration oversaw the repeal of
the Glass-Steagall act which was enacted after FDR’s
“New Deal”. Glass-Steagall separated investment
banks (which underwrite Initial Public Offerings
and Mergers and Acquisitions) and retail banks, thus
not allowing customer deposits to be utilised for
speculative investments.
Under Glass-Steagall, a banking behemoth such as
JP Morgan Chase could not exist. Glass-Steagall
prevented institutions from being “too big to fail”. Its
reintroduction should be sought forthwith.
Of the many questionable mechanics of international
banking in the twenty-first century, some of the most
damaging are derivatives. Some derivatives serve a
social and economic function by enabling institutions
to spread risk in a manner akin to insurance.
However, certain breed of derivative, created in
1994 by JP Morgan named the “Credit Default
Swap” (CDS), currently threatens to collapse the real
economy.
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